Your Money Curriculum How to get straight A's in personal finance this year

Your Money Curriculum How to get straight A's in personal finance this year

If looking at all the back-to-school displays gets you pining for a bouquet of newly sharpened pencils à la Tom Hanks and Meg Ryan in You’ve Got Mail, I have a solution for you: a curriculum of your own. Only this one’s not for Shakespeare. It’s for your wallet.

Whether you’re in debt, spending too much or not saving enough, this plan will help you go from C’s and D’s to straight A’s in the class of personal finance.

Lesson #1: Get out of debt.

So you have a mortgage, a car loan and credit card debt to boot. It seems as if every dollar that comes in has a place to go, so how can you possibly pay down your debt faster? The key is to track your spending. If you write down every dollar you spend, you will see where it goes, and you will see the fat that you can trim. Lattes at work are the classic example (and it’s true that cutting your coffee habit can save you up to $2,000 per year), but I want you to look at bigger expenditures, too. Your cable bill. Your wireless bill. Your grocery bill. Look at what you’re getting, and ask yourself if you really need all of it. Chances are, there are cable channels you’re not watching and DVR boxes you’re not using. Dropping these from your bill will save you big bucks-and the same goes for voice minutes you’re not using and food you’re not eating.

Then, take these savings and start funneling them toward your credit card debt and your highest interest card. If you can consistently pay more than the minimum payment on your credit card bill, you will pay down your debt much, much faster.

Lesson #2: Increase personal savings.

According to a June 2012 Bankrate.com survey, 49 percent of Americans do not have enough emergency savings to cover three months’ worth of expenses. What’s more, according to the National Bureau of Economic Research, nearly that same amount of people could not come up with $2,000 in 30 days without taking out a payday loan or depending on a credit card.

This won’t do. Emergencies happen, and you need to be prepared-credit cards don’t count. Consider the following math problem:

In one month, your dog gets sick, the transmission to the car blows out, and you get a parking ticket. The trip to the vet costs $99, the auto repair costs $811, and the parking ticket sets you back $75. Paid with money from an emergency fund, this will cost you $985. But if you were to charge all of this to your credit card and then only make the minimum payments, these three emergencies will cost you $1,451.66. At an interest rate of 15 percent, it will take you five years and 11 months to pay this off.

Classroom activity: Automate your savings. Science has shown that if we can’t see it and we can’t touch it, we won’t spend it. If you’re not saving anything right now, start small with, say, 5 percent of your monthly income. If you find that saving 5 percent is easy, bump it up to 6 percent and then 7 percent. Your goal is to save 10 percent of your income each month and to have an emergency cushion of six to nine months’ worth of expenses.

Lesson #3: Plan for the future.

Studies have shown that we view our future selves as strangers. This is why we have trouble planning for retirement. We tell ourselves, “Hey, that’s 30 years down the road, but I need to pay for groceries now” or “college now” or “fun now.” However, you’re only hurting your 80-year-old self-the one with joint problems needing consistent physical therapy-by not setting aside enough money to take care of him or her.

Homework: Head to the Wharton School of Business’ “How Long Will I Live?” calculator. This will give you a better sense of how long you can expect to live, and how far you will need to stretch your money. Then, visit Choose to Save’s Ballpark E$timate calculator. This will give you a sense of how much you should be saving now for tomorrow. Once you have these figures, you should be much more motivated to save for the future.

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Jean Chatzky is a leading personal finance expert, award-winning journalist and best-selling author. She is also the financial editor for NBC’s Today show and runs HerMoney, a site and podcast focused on women's relationships with money.